Closing post
Time to wrap up.
UK borrowing costs have risen today, amid a flurry of domestic and international factors.
The yield, or interest rate, on 10-year UK bonds is up 8 basis points (0.08 of a percentage point) at 4.78% this evening, with 30-year yields up 9bps to 5.535%. These aren’t massive moves, but they do nudge the cost of borrowing higher.
UK bonds weakened amid speculation about whether Andy Burnham will replace Keir Starmer, having won the Makerfield by-election, and whether this would lead to higher borrowing to fund his plans.
They also dropped after the UK public finances showed a jump in borrowing in May, showing that whoever is prime minister faces a sticky fiscal situation.
The UK borrowed a higher-than-expected £23.3bn in May amid the economic fallout from the Iran war.
Bond yields were also pushed up by concerns that US-Iran talks planned for today in Switzerland to implement a peace deal were cancelled.
Analysts have warned that a summer leadership battle could push up UK borrowing costs.
Here are today’s main stories:
We’ll be back next week. Have a lovely weekend!
Updated
There probably isn’t time for Andy Burnham to become prime minister and devise a large front-loaded fiscal loosening by the next Budget in the autumn.
Consultancy Oxford Economics’s senior economist Edward Allenby explains:
“In part, this is because events have moved fast and there’s little to suggest Burnham’s team has a detailed policy package already in the works.
“Developing that package in time for the autumn Budget will be made even harder if Burnham has to win a prolonged leadership contest first.”
When it comes to the implications for the economy, a change in Prime Minister does not equal a change in fiscal realities.
So points out Ashley Webb, senior UK economist at Capital Economics, explaining to clients that the UK’s weak fiscal position will constrain whoever is PM.
Webb explains:
That said, Burnham (or whoever becomes PM) could change both the size and composition of the state. He would probably be more interventionist than Starmer, with both higher spending and higher taxes. But his proposed tax hikes on the wealthy are unlikely to generate enough revenue to fully fund his planned spending increases, especially given the growing political pressure to increase defence spending.
This suggests borrowing will be higher than on current plans and fiscal policy will be looser. Admittedly, Burham has rowed back on his comments that the government should not be “in hock to the bond markets” by reinforcing the need for “strong fiscal rules”. So any increase in borrowing will probably be modest. And there will be a lot of talk and ink spilt over the coming weeks about which areas of public spending Burnham (or other possible leadership candidates) will want to raise, such as social housing construction, and which taxes could be raised to pay for it.
Eurasia Group, a consultancy, reckons there’s an 80% probability that Keir Starmer will be replaced as prime minister, following Andy Burnham’s strong victory in the Makerfield by-election.
Their managing director, Mujtaba Rahman, writes:
Despite Starmer’s defiant mood, Eurasia Group believes an orderly transition of power by the Labour party conference on 27-30 September is more likely than a leadership contest; if Starmer sticks to his guns and forces a contest, Burnham will likely win it (an 80% probability).
Burnham’s allies will now try to convince Starmer to stand down, by demonstrating a show of strength among Labour backbenchers and mobilizing key Cabinet ministers Shabana Mahmood, Ed Miliband, Yvette Cooper and Lisa Nandy to put pressure on the PM to quit.
Ryanair's O'Leary lands longer CEO contract
In the airline sector, Michael O’Leary has had his contract as chief executive of Ryanair extended for another six years until 2032, by the company’s board.
Concluding months of talks the board said he would continue on a “ modest annual salary and a capped annual bonus” along with a new one-off purchase option over 10m ordinary shares which can be cashed in at €26.70 - equal to the share price pre-Iran war.
But this is on condition that the company’s pre tax profits reach over €4bn.
Last month, it was calculated that this bonus could be worth another €100m or more.
Ryanair chairman, Stan McCarthy said:
“As previously announced, this Spring the Board commenced discussions with MOL on his contract. I am pleased to report that this process, which included extensive engagement with Ryanair’s largest shareholders, has successfully concluded with Michael agreeing to extend his leadership of the Ryanair Group for the next 6-years to April 2032, for the benefit of all shareholders.”
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UK National Drought Group meets after dry spring
As well as the possibility of nationalisation under a Burnham government, UK water companies are also facing the risk of a drought this year.
The National Drought Group met yesterday, and learned that some areas are already seeing the impacts of drier conditions.
Northern England receiving 90% of average rainfall in recent months compared to just 50% in Southern England, the Group says – which will counter the benefits of the exceptionally wet winter.
Worryingly, UK farmers have reported issues with the growth of spring crops and have had to begin irrigating earlier than normal because of the dry soils.
National Drought Group chair and director of water at the Environment Agency, Helen Wakeham, said:
We enter summer in a generally favourable position, but we can never be complacent ahead of those crucial drier months.
Heatwaves will continue to be a concern as they can drive spikes in water demand, so we need to continue to work collaboratively to use our finite water wisely.
While many of us enjoy the hot weather, we ask everyone to be mindful of their water use. Every drop saved leaves more available for farmers, our local rivers and wildlife.
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Back in the financial markets, the pound has bounced back from an early slide.
The pound hit an over two-month low of $1.3164 in early trading, but has now climbed back to $1.323, 0.2% higher on the day.
ONS reveals error with labour force survey data collection
Oh dear. The Office for National Statistics has just ‘fessed up to another error.
The ONS has admitted that it misallocated the telephone interviewers it uses to compile its labour force statistics, which means next month’s unemployment data will be of lower quality than usual.
It accidentally allocated too many to its Transformed Labour Force Survey (TLFS), leaving too few collecting data for its traditional Labour Force Survey (LFS).
Both surveys are running in parallel, with the TLFS being created to tackle the problems getting enough people to respond to the LFS.
James Benford, director-general for surveys and economic and social statistics at the ONS (who was parachuted into the stats body to sort things out), says:
I am sorry that this issue occurred and regret that it was not detected and acted upon at an earlier point. Once the issue became clear, we undertook a number of rapid actions.
Firstly, operationally, the issue has now been resolved. The measures we have put in place to ensure it doesn’t happen again include tighter daily monitoring, reprioritisation of resource and changes to shift patterns and work allocation.
Next, we have been assessing how much impact this will have on our labour market statistics. In simple terms, there will be a level of reduced quality for our labour market statistics in July, with a smaller effect on the subsequent releases, because we will be replacing missing data points with estimated values.
Updated
British businesses are concerned that the UK could be dragged into a summer of speculation and drift, if Labour hold a leadership battle.
Rain Newton-Smith, CEO of the CBI, has warned:
The UK cannot afford a summer of speculation and drift while politicians are distracted by internal party dynamics. The government must remain focused on delivery and implementation.
For strong, stable economic growth you need strong, stable, consistent government. Political uncertainty dampens business confidence and investment, impacting job creation, wages and the cost of living.
We need a government that is focused on the future, and getting on with the job of governing. Business needs to know that the government can take big decisions, will deliver on its commitments and is prepared to tackle the rising costs of doing business.
Updated
Small interest rate cut in Russia
Over in Moscow, Russia’s central bank has cut interest rates… by less than expected.
At a time when some central banks are tightening policy (in Japan, and the eurozone), the Bank of Russia has trimmed its benchmark interest rate by 25 basis points to 14.25%.
That quarter-point rate cut is smaller than the half-point cut which analysts had expected.
Announcing the cut, the Bank of Russia warned that proinflationary risks still prevail over disinflationary ones on the mid-term horizon.
The proinflationary risks associated with high inflation expectations and a long period of wage growth outpacing productivity growth, as well as with a deterioration in the global economic outlook and rising global price pressures amid increased geopolitical tensions, are still in place.
Proinflationary risks have increased due to a temporary decline in motor fuel production. Disinflationary risks involve a more significant slowdown in domestic demand.
Labour leadership battle could push up UK bond yields
City economists and analysts are concerned that UK government borrowing costs could rise if the Labour Party holds a leadership race this summer.
UK bond yields could be pushed higher if investors fear an increase in borrowing under a Burnham administration, as the new MP for Makerfield pledges to address the cost of living crisis.
Dan Coatsworth, head of markets at AJ Bell, says there is potential for gilt yields to keep rising if Starmer “doesn’t go quietly”.
With 10 and 30-year bond yields higher today (in line with other European government bonds), Coatsworth says:
Friday’s moves reflect the risk that Starmer won’t go quietly. But they also reflect the setback with the US-Iran peace deal which has caused oil prices to rise again today, and inflation fears to remain on the table, thus having a direct read-across to interest rates and bond yields.
“Over the coming days, the bond market will look for clues on Burnham’s chances for getting the top job, and how he might steer Labour in a different direction. He might not have wanted to rock the boat ahead of the by-election for fear of causing upset or ruining his chances. Now he’s in a stronger position to lay out policy changes and not simply tow the party line.
Reminder: Bond yields rise when the price of the bond falls, and are a gauge of the cost of issuing new debt.
This morning, the yield (or interest rate) on UK 30-year bonds is now up 8 basis points (0.08 of a percentage point) to 5.529%. That’s only the highest since Tuesday, and some way below the 27-year high of 5.89% set in May, when borrowing costs were climbing.
Alexandros Xenofontos and Christopher Granville at City firm TS Lombard say gilts (UK government bonds) are constrained by the return of domestic political risk, explaining:
The question for gilts is whether the next Labour leadership preserves the Starmer-Reeves fiscal bastion, shifts left through funded tax-and-spend, or starts testing the fiscal rules.
Neil Wilson, investor strategist at Saxo UK, sees signs that markets are already worrying about the result from Makerfield, because:
a) the uncertainty that naturally surrounds a leadership race and b) more importantly, a likely crowning of Burnham as PM and leftwards lurch by the government as he is widely seen as the least market friendly option. I wouldn’t be surprised if the multi-year/decade highs on the 10yr and 30yr are not tested again as he sets out his policy ideals.
That said, however, the macro backdrop is different to early May when market angst over inflation was elevated and the market was pricing in multiple rate hikes by the BoE. The calculation relating to Hormuz and the BoE has changed markedly since then but the market will be hyper sensitive to how Burnham runs his campaign now.
There’s also the scenario in which Burnham replaces Starmer, and calls a snap general election, to consider.
AJ Bell’s Dan Coatsworth says that could really worry the bond market:
“Should an early general election be called and were Labour to lose power to Reform, then bond markets could have a much bigger issue on their hands.
A Reform government would almost certainly make investors demand a higher reward for the risk of backing the UK, as Reform’s policies are currently thin on detail. In that situation, expect higher bond yields, a more volatile pound, and concerns that any unfunded tax cuts will put even more pressure on government borrowing.”
Updated
The rise in UK bond yields, because of political uncertainty, will be nervously watched by the Bank of England’s monetary policy committee (MPC) as it represents a tightening of financial conditions, Professor Costas Milas of the Management School at the University of Liverpool tells us.
Rising bond yields will put the spotlight on the Bank’s quantitative tightening (QT) programme, in which it is selling off the government bonds it bought after the financial crisis and during the Covid-19 pandemic. Selling bonds puts upward pressure on bond yields.
Professor Milas says:
The rise in yields, if it continues, will surely raise the issue of whether the MPC should halt or even reverse its QT policies. It should NOT for two reasons: First, the MPC shouldn’t intervene with Labour’s political infighting and consequent turbulence.
Second, in a recent BoE Working Paper, colleagues and I show that QT policies have reduced CPI inflation by 1.4 percentage points compared to the case where QT policies were not pursued. In other words, and this is strictly my personal opinion, the MPC should continue with QT as normal because it puts a “lid” on inflation pressures.
Asda slumps to near £1bn loss
British supermarket group Asda slumped to a near £1bn loss last year after it kicked off a supermarket price war and revamped its IT systems.
Sales, including fuel, fell 3.6% to £25.9bn – including a 3.1% drop at established stores – but losses widened from £599m in 2024 to £989m after Allan Leighton, the executive chairman of Asda last year pledged to invest “a pretty significant war chest” in cutting prices and putting more staff on the shop floor.
His aim is to make Asda, which has 580 supermarkets, 517 convenience stores and four stand-alone outlets for its George clothing and homewares brand, 5% to 10% cheaper than its traditional rivals – Tesco, Sainsbury’s and Morrisons – and are now between 4% and 7% cheaper.
An Asda spokesperson said:
Asda invested significantly to lower prices for customers in 2025 and strengthen its value proposition at a time of sustained cost of living pressures.
Leighton has said it could take up to five years to turn around Asda, which is at risk of losing its spot as the UK’s third largest supermarket to German-owned discounter Aldi.
Leighton, who returned to lead the business in November 2024 after a 20-year absence, has said availability has improved dramatically now most of the IT problems have been fixed and a new deal with Ocado will help modernise Asda’s currently declining online business from next year.
There are also plans to expand the George brand with more standalone stores and better presentation in Asda’s supermarkets.
The figures, which have been filed at Companies House today, show the loss also comes after £656m of one-off costs including £284m related to Project Future, the IT separation from Walmart, and a £344m impairment on Asda’s £8bn property portfolio.
The latest update takes the total spent on Project Future to about £1.2bn, with Leighton recently admitting there was still some more work to do.
The Asda spokesperson said:
The reported loss does not reflect the underlying financial strength of the business – and continued powerful cash generation.
Asda is supported by a strong balance sheet and capital structure, with £1.3bn in cash, £2.1bn of total liquidity at the year end, and the majority of borrowings secured well into the next decade. This gives us the flexibility to continue investing in our long-term growth strategy and deliver a disciplined and sustainable turnaround.
Updated
Personal insolvencies rise in England and Wales
There’s mixed news from the latest insolvency data.
The good news is that the number of registered company insolvencies in England and Wales fell by 10% month-on-month in May, to 1,868, thanks to a drop in liquidations and administrations.
That’s 16% lower than in May 2025.
However, the personal insolvency data paints a worse picture; 11,223 individuals entered insolvency in England and Wales. That’s 10% higher than in May 2025, and little changed month-on-month.
For markets, the key question following the Makerfield byelection is whether this political shift translates into a change in the policy framework, explains Modupe Adegbembo, economist at the investment bank Jefferies.
That’s because the binding constraint on the government is not ideology but fiscal space and execution capacity, Adegbembo explains:
Under Burnham, his comments suggest the overarching macro framework would be largely unchanged. He has committed to existing fiscal rules and manifesto tax constraints, underscoring the limited room for policy easing. At the same time, he has provided little indication that he would seek to reduce public spending, having already pledged to keep the pension triple lock and, at times, signalling support for policies with a significant fiscal cost, such as compensation for WASPI women (though he later ruled out compensation). While he has shown some willingness to adjust policies, we continue to think the thrust of policy remains constrained by the fiscal backdrop.
The key shift is likely in political emphasis, with greater weight on the soft-left and Burnham’s “Manchesterism”, rather than a material loosening of the framework. “Manchesterism” looks less about fiscal expansion and more about place-based partnerships with the private sector, alongside greater use of regulatory levers, sector oversight and procurement to deliver policy at the margin. This is a shift investors may be underestimating.
Updated
Bank of England to test how private credit would handle a 1970s-style economic crisis
The private credit and private equity industries will reveal how they would respond to a “severe but plausible” economic shock involving surging inflation, a 30% drop in key stock markets, and major disruption to the booming AI sector, as part of a world-first test unveiled by the Bank of England.
The stress test scenario, released this morning, covers a global shock lasting five years, starting with a surge in geopolitical tensions that leads to fragmented global trade and supply chains. Jitters filter through, leading to CPI inflation of 7%, a hike in borrowing costs and trigger 30% declines in the FTSE All Share Index and a 35% drop in the S&P 500 within the first year.
In this scenario the UK suffers a 1970s style economic crisis, marked by a sharp drop in trade and hike in import costs, hitting company revenues. Tech, consumer discretionary and industrial sectors are hardest hit, though the BoE has made sure to outline specific impacts to the AI sector, which has been fuelled by private credit investments.
It says:
Expectations of future disruption from artificial intelligence (AI) weigh on valuations in software and services sectors, particularly in companies judged as having weaker competitive advantages or a ‘smaller moat’ as a result of AI. Disruption to supply chains and weaker demand also weighs heavily on hardware.
At the same time, AI-development is hit by higher energy prices and a shortage of key hardware components. This increases the costs for users of AI and slows the development of new models, meaning the near-term productivity gains from AI are limited.
The stress test is meant to map out potential risks linked to the private market boom, including whether the private credit and private equity sectors could end up amplifying financial and economic shocks.
It’s a first step towards understanding how influential private markets become within the financial system, having long been criticised for a lack of transparency.
It will be quite an involved process, with results due to be released to the public in early 2027.
Updated
Burnham's 'Manchesterism' is already reshaping Labour’s debate
Investment bank Cavendish argues that Andy Burnham is already reshaping the government agenda.
In a new report after the Makerfield byelection, Cavendish point out that this is particularly important for water and transport companies, saying:
The agenda arrives before the man. This is the part that matters even if Burnham never reaches No 10. His platform – “Manchesterism” – is already reshaping Labour’s debate, and the soft-left network behind it is ascendant regardless of the result.
It names specific sectors and sets out to change the terms on which they operate: increased scrutiny of tech, greater public control of energy, the sharpest exposure of all in water, bus and rail franchising in transport, a for-profit care model it wants to dismantle, and around £40bn of borrowing to build.
Any organisation in or near those sectors is already inside the policy, whether it has noticed or not.
Updated
UK two-year gilt yield rises to one-week high after by-election and borrowing data
A week is a long time in politics, and also in the bond markets!
Reuters has spotted that short-term British government bond yields have risen to a one-week high on Friday, increasing slightly more than those for German debt, after this morning’s higher-than-expected borrowing numbers and an election victory for Greater Manchester Mayor Andy Burnham.
Two-year gilt yields rose to their highest since June 12 at 4.25%, up more than 6 basis points on the day and rising around 2 bps more than equivalent German bonds.
Updated
Water company shares drop after Burnham win
Shares in UK water companies are dropping in early trading, as Andy Burnham’s byelection win raises the prospect of nationalisation.
United Utilities, which provides water and wastewater services in the North West of England, are down 1.3%.
Severn Trent, which operates across the Midlands, South West, and Wales, are down 1.2%
Last weekend, the Guardian reported that bringing water and energy into public control would be at the heart of Burnham’s agenda should he become prime minister.
Several close allies of Burnham have said he wants to take over broad swathes of UK utilities in an effort to improve performance and potentially reduce bills for consumers, with one saying:
When Andy says he wants the public to have control over ‘the essentials of life’, we should believe him. He is completely serious.
That process would involve the government taking over water companies as they either fail (yes you, Thames Water) or their franchises come up for renewal.
Updated
UK bond yields on the rise
British government borrowing costs have jumped at the start of trading in the bond market.
Investors are digesting the jump in UK’s budget deficit in May, Andy Burnham’s victory in Makerfield, and a breakdown in the US-Iran peace talks.
The yield, or interest rate, on UK 10-year bonds has risen by 5 basis points (0.05 of a percentage point) to 4.799%.
30-year bond yields are up almost 6bps, at 5.5%.
Traders could be concluding that a Burnham premiership (should he win a leadership battle) might increase spending and borrowing, which would push up bond yields.
But… other government bond yields are also rising, although not quite as rapidly as for UK bonds. German 10-year bund yields are up 3.5bps this morning.
That tracks a rise in the Brent crude oil price, back over $80 a barrel, after planned peace talks between the US and Iran in Switzerland today were cancelled as Hezbollah targeted Israeli forces and Israel carried out a wave of airstrikes in south Lebanon, which killed at least 16 people.
Updated
Conservatives: Borrowing is out of control
Shadow chancellor Mel Stride has claimed that UK borrowing is ‘out of control’, saying:
Borrowing is out of control - up by 30% compared to last year - and now we’re about to see what a real left wing Labour government looks like under Andy Burnham.
Burnham claims he is committed to the fiscal rules, yet when asked he could not even say what they are. The bond markets are watching nervously and we have already been paying a Burnham Penalty on our borrowing costs. Meanwhile, Reform have been busy pledging tens of billions in unfunded promises in their desperation to win in Makerfield.
The Conservatives are the only party with a plan to balance the books by getting spending under control, especially the welfare bill, in line with our Golden Economic Rule.
[Reminder, the national debt rose, from 65% of GDP to 94% of GDP, during the Conservative’s last stint in power, from 2010 to 2024]
Updated
Chief secretary to the Treasury Lucy Rigby has pinned the blame for the rise in borrowing on the Middle East crisis, saying:
Inflation has held steady and unemployment has fallen this week, but the war in the Middle East has clearly had an impact on economies around the world.
We have the right economic plan to deal with these challenges – protecting families and businesses from rising costs, while cutting borrowing at a faster rate than any other G7 economy.
[Reminder: increased inflation drove up the cost of repaying index-linked government bonds]
Updated
Hot weather boosts UK retail sales
There is some encouraging economic news this morning – retail spending across Britain jumped by 1.2% in May.
Hot weather and sales offers encouraged consumers into the shops last month, meaning retail sales volumes more than bounced back after a 1% fall in April. Volumes were 3.2% higher than in May 2025.
Retailers reported that hot weather in May boosted sales of items such as fans and paddling pools, according to the Office for National Statistics, with department stores also benefiting from promotions and the hot weather.
Hai-Ly Nguyen, associate partner at McKinsey & Company says:
“Retail sales volumes rose 3.2% year-on-year, helped by the hottest UK May day on record and a late bank holiday. But, if you look at the three-month trend, sales are up just 0.4%, pointing to a heat-driven spike rather than a turning point.”
“Department stores and online drove the lift. For non-store retailers they saw a 6.1% monthly rise, the largest since February 2025, taking online share to 28.8%. That channel shift is being reinforced by a structural one: our European research shows 38% of consumers now use AI to decide what to buy, with 63% to compare brands, prices and reviews.”
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Why Andy Burnham’s byelection victory matters for the public finances
Martin Beck, chief economist at WPI Strategy, has warned that the underlying picture of the UK public finances “remains uncomfortable”, even if the US-Iran deal helps to ease inflation.
He points out:
The deficit is still large, debt interest is still absorbing a painful share of revenue, and the tax burden is already heading for post-war highs. There is no easy escape route through either borrowing or taxation.
“That is why Andy Burnham’s by-election victory matters for the public finances. It does not change the arithmetic overnight, but it changes the politics around the arithmetic. A serious Labour leadership challenge would raise a simple question for markets: is the governing party about to shift towards higher spending, looser fiscal rules and a more relaxed attitude to borrowing?
“Burnham’s past argument that governments should not be “in hock” to bond markets may play well politically, but it is not a fiscal strategy. Any Prime Minister inheriting an annual deficit of well over £100bn would quickly discover that the gilt market is not an optional audience.
Beck concludes that the gilt market is now the hard constraint on British politics:
A Burnham premiership might change the language of economic policy, but it would not abolish the arithmetic. The next Labour leader, whoever it is, will still face the same brutal equation: weak growth, high borrowing, expensive debt and very little room for manoeuvre.”
Updated
UK borrowing: what the experts say
Emeritus professor Joe Nellis, economic adviser at MHA, warns that the UK public finances are “not in comfortable territory”, after borrowing jumped by £5.4bn year-on-year last month:
Public sector net borrowing came in at £23.3bn in May, showing the continuing pressure on the UK’s public finances and the difficult choices that lie ahead for the government and the Treasury for the rest of this financial year.
Borrowing in May was only slightly below the exceptionally high level recorded for April, remaining very high by historical standards. The latest data once more highlight the difficulty of balancing public-sector spending requirements with the government’s pledge to keep public finances on a sustainable path.
A number of factors continue to weigh heavily on the fiscal position. Debt interest payments remain elevated, public services are under significant strain, and weaker economic growth risks limiting the pace of tax revenue growth into the Treasury coffers. At the same time, seemingly unending demands for more and more spending, particularly on health, defence and infrastructure, show little sign of easing up.
The implications reach far beyond just the monthly borrowing numbers themselves. The figures will shape expectations about the Chancellor’s room for manoeuvre ahead of the Autumn Budget and will influence decisions on taxation, public spending and borrowing for the remainder of the financial year. The UK is far removed from the extraordinary borrowing levels seen during the pandemic, but the public finances are not in comfortable territory.
This chart shows how UK government borrowing has been higher so far this financial year (light blue) than in the 2025-26 financial year (dark blue).
How government spending rose in May
Today’s public finances report also shows how inflation drove up the cost of servicing the national debt in May.
The Office for National Statistics reports that the debt interest bill increased by £4.1bn to £11.7bn, due to movements in the Retail Prices Index (RPI) of inflation.
Government spending on services, and benefits such as pensions, both rose too:
The ONS explains:
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central government departmental spending on goods and services increased by £2.2bn to £39.6bn, as inflation increased the cost of providing public services
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net social benefits paid by central government increased by £1.2bn to £28.4bn; this was largely caused by inflation-linked increases in many benefits, and earnings-linked increases to State Pension payments
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Introduction: UK borrowing surges over forecasts in May
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The health of the British economy is centre stage today, as Andy Burnham wins the Makerfield by-election and declared that the Labour party has a “final chance to change”.
But the latest public finances, just released, show the challenges facing whoever is in Downing Street.
Britain borrowed £23.3bn in May to cover the difference between government income and spending – a surge of £5.4bn more than a year ago.
That’s the highest borrowing for any May since 2020, when the Covid-19 lockdown was in force.
Worryingly, it’s also also £5.6bn more than the £17.7bn forecast by the Office for Budget Responsibility (OBR), the UK’s fiscal watchdog.
This means government borrowing for this financial year (since April) is running £7.7bn over the OBR’s forecasts – at £46.3bn.
That raises the risk that borrowing could be higher than forecast by the next budget, risking breaking Rachel Reeves’s fiscal rules – unless, of course, there is a leadership battle, and a new chancellor by the autumn…
The bigger picture is that this pushes the UK’s national debt up to 95.1% of GDP, levels last seen in the early 1960s
ONS senior statistician Tom Davies says:
“Borrowing in the first two months of the financial year was nearly £9 billion higher than the same period of 2025.
“Spending on debt interest, public services, investment and benefits all increased in May 2026, compared with last May, more than outweighing higher tax receipts.”
The agenda
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7am BST: UK retail sales report for May
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7am BST: UK public finances report for May
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11.30am BST: Bank of Russia interest rate decision
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